Asked by Halwi Ahmed on May 23, 2024
Verified
Refer to Table 17-10. Briefly explain why each duopolist earns a lower profit at the Nash equilibrium than if they cooperated to produce the monopoly output.
Nash Equilibrium
A concept in game theory where no participant can gain by unilaterally changing strategies if the strategies of the others remain unchanged.
Monopoly Output
The quantity of goods or services produced by a monopoly, which is determined at the point where the monopoly's marginal cost meets the market demand curve.
Duopolist
One of two firms in a market where only two firms offer a particular product or service, leading to a specific form of competition.
- Clarify the complications with sustaining stable monopoly output in cartels, owing to predicaments akin to the prisoners' dilemma.
- Analyze the obstacles of working together in oligopolistic environments and possible effects, like the failure of collusion.
Verified Answer
YZ
Yunze ZhangMay 25, 2024
Final Answer :
The monopoly outcome occurs at the highest total profit level of Q=6, P=$6, total profit=$36, and each duopolist earns $18. As each duopolist tries to produce a slightly higher level of output to earn higher profits than half of the monopoly-output profits, total quantity produced in the market increases, which lowers market price.
Learning Objectives
- Clarify the complications with sustaining stable monopoly output in cartels, owing to predicaments akin to the prisoners' dilemma.
- Analyze the obstacles of working together in oligopolistic environments and possible effects, like the failure of collusion.